The US Federal Reserve (Fed) held its key interest rate steady at its meeting on May 2, but rising inflation in the world’s largest economy may prompt the US central bank to opt for a rate revision as early as June. The Fed’s decision to leave its benchmark overnight lending rate in a target range of between 1.5% and 1.75% was said to be “unanimous”. Inflation in the US has already climbed close to Fed’s 2% goal, paving the way for another rate hike next month, analysts say. At its last meeting, the Fed left rates unchanged after hiking a quarter point in March, and added minor tweaks to its comments on inflation and the economy. Constitutionally, analysts point out that the Fed has two mandates. First, to ensure price stability, consisting of maintaining an inflation target of 2% and second, to support growth and employment. To succeed in these missions, the Federal Open Market Committee (FOMC) uses powerful monetary tools, according to ‘The Public Sphere’ journal of public policy. The most commonly known tool is the Fed’s ability to set the Federal Funds Rate, which is the average interest rate that determines how much it costs for financial institutions to lend to one another. The interest rate set by the central bank is transferred to the real economy by intermediaries – financial institutions – that in turn lend to governments for public expenditures, companies for investments and households for consumption. The underlying principle is simple, the journal says and notes when the economy is overheating, central banks increase their interest rates to dissuade agents from borrowing loads of money. On the contrary, when the economy is slowing down, interest rates are cut to encourage borrowing and stimulate the drivers of growth: investments, consumption and government expenditure. The Fed has forecast a total of three interest rate hikes for 2018. Some market participants have said they believe it will raise rates once a quarter instead, making it four for the year. But there is an even split. A CNBC survey prior to Fed’s last meeting showed about 46% of respondents expected two more hikes, while the same percentage saw three in 2018. Fed watchers had expected the Fed to acknowledge that inflation is moving higher, after lagging. Investors overwhelmingly expect a rate hike at the June 12-13 policy meeting, a Reuters’ dispatch showed. Rising interest rates are not necessarily bad, as they are considered a sign of a well-performing economy. But for an average borrower, it means more expenses in terms of higher rates on personal, auto loans, mortgage or credit cards. A vast majority of various loans have a variable rate, which means they rise and fall in lock step with the prime rate. So be it rate hold or an upward revision, the Fed’s decisions will affect the international economic order, as major central banks’ around the world track the US, when they set their monetary policies.